Priorities in HR Function Budgets Are Likely to Keep Shifting in 2021

CHROs expect HR function budgets to be under constant pressure in the year ahead. Make sure to protect what’s important.

The 2021 Gartner HR Budget and Staffing Survey shows over one-third (34%) of HR leaders plan to decrease the HR function budgets this year. That’s twice as many as in 2020, when only 17% expected their HR function budget to decrease. 

“These insights reveal the ongoing pressure on HR leaders to drive efficiencies and rethink their priorities as they continue to work through the lingering effects of the pandemic,” said Hanne Nieberg, Director Analyst, Gartner. “although difficult times call for difficult actions, HR leaders must be careful not to run the risk of destructive cost-cutting that results in lost productivity and derails future growth opportunities.”

Read more: HR Under Pressure to Cut Costs? Know How to Protect What’s Important

HR function budget: What’s under most scrutiny? 

Gartner has identified five subfunction budgets that will be especially impacted by budget reallocations this year.

1. Recruiting

Recruiting is the main focus area when it comes to decreasing budgets in 2021, with 30% of organizations agreeing they will reduce these expenses. This is driven in part by more process standardization and automation in the recruiting process

But many organizations will also retain hiring freezes to contain costs, reducing demand for recruiting activities. 

Subfunctional HR Function Budget Outlook

2. Learning and development (L&D)

L&D plays a special role in 2021’s HR budget forecast. While it is the second-most commonly cited target for budget cuts, it’s also No. 2 on the wish list for increases. This most likely reflects a “save-to-invest strategy,” where HR leaders cut costs in certain areas to free up budget for other initiatives that are more crucial under strenuous economic conditions. And for some, L&D is critical for growth.

“During past uncertainty, organizations that could strategically optimize costs while also nurturing growth bets have often outpaced peer companies,” says Seyda Berger-Böcker, Director Analyst, Gartner. 

Additionally, Gartner research reveals that 80% of organizations have canceled, or are planning on cancelling, in-person L&D training. With the adoption of remote and hybrid work, L&D will pivot its learning offerings to a virtual framework and realize additional savings, because in-person training and travel expenses will now be unnecessary.

Read more: How to Pick Your Best Cost Initiatives

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3. Administration and payroll

Administration and payroll is the third-most commonly cited target of expected budget decreases — with 24% of respondents indicating they want to reduce their budget over the next year. 

To achieve this, many organizations will move transactional HR processes to shared services or external providers. 

Read more: 7 Cost-Reduction Mistakes to Avoid in Your 2021 Strategy

4. Diversity, equity and inclusion (DEI)

Many organizations are making new or heightened commitments to DEI in the workplace after the racial equality campaigns that emerged during the past year. 

This urgency is echoed internally, with many organizations still looking to solidify their DEI function, goals and overall strategy. Looking ahead, almost half of organizations want to increase their budgets to further establish DEI in all areas of their HR process.

5. HR technology 

With the quick adoption of remote work, many organizations implemented new technologies to ensure employee productivity and collaboration, yet only 30% of employees say they are truly satisfied with the HR technology solutions available to them. 

Gartner research shows more than one-third of respondents want to increase their HR technology budgets. With Gartner projecting that 48% of employees will keep working remotely at least some of the time after COVID-19, and nearly one in five will work remotely full time, HR leaders will need to invest in new technologies to address the adoption of a remote or hybrid workforce.

Read more: 10 Ways to Optimize HR Costs

Some Gartner clients can read the HR Budget Outlook for 2021.

 

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